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Enlarged BRICS to benefit more, over time, from global investment flows

President Cyril Ramaphosa walks at the 15th BRICS Summit. BRICS, with the right planning and policies, could attract a greater share of global investments, says an analyst. Picture: Elmond Jiyane/GCIS

President Cyril Ramaphosa walks at the 15th BRICS Summit. BRICS, with the right planning and policies, could attract a greater share of global investments, says an analyst. Picture: Elmond Jiyane/GCIS

Published Aug 25, 2023


The addition of six members to BRICS was political development that could lay the foundation of much higher investment between the countries over time, market analysts said yesterday.

Saudi Arabia, Iran, Ethiopia, Egypt, Argentina and the UAE were invited by the leaders of Brazil, Russia, India and China, at the BRICS Summit in Johannesburg yesterday, to become members of the bloc.

The invitations made were on a day that saw emerging market (EM) stocks rise 1.5% while emerging market currencies added 0.4% – all BRICS members are considered in the financial world as emerging markets, even China, which has the world’s second biggest gross domestic product (GDP).

Yesterday’s breather for developing countries comes at a time when concerns about China's economic slowdown and expectations of prolonged higher interest rates by the US Federal Reserve have contributed to the most significant August sell-off in years for emerging markets.

The increased BRICS membership is part of efforts to forge it into a viable counterweight to the West.

"We are seeing the emergence today of a new geopolitical reality and a much closer co-operation in the Global South in response to what has happened post the Russian invasion into Ukraine and the Western sanctions," said Jakob Ekholdt Christensen, a senior EM fixed income strategist at BankInvest told Reuters, adding that it is a medium-term story for the economies.

"(It is) clear that it is about strategic partnership and access to resources, notably oil," Christensen said.

He said China, Brazil and India would benefit in terms of easy access to oil, and Argentina and notably Iran would benefit in terms of access to markets and foreign direct investment (FDI).

Old Mutual Group chief economist Johan Els said, from a longer term, global positioning point of view, in terms of non-aligned countries, the expanded BRICS was a positive development that could bring benefits, even if the expanded BRICS was unlikely to result in big short-term increases in investments between them.

He said although China and India attract the biggest emerging investments because of their size, “we (South Africa) get our fair share.”

Mergence Investment Managers head of equities Peter Takaendesa said over the shorter term, it was possible that the expanded BRICS would benefit from faster growth in the existing goods, commodities and investment flows between themselves.

He cautioned, however, it would, in theory, take a long time for BRICS to decouple from Western investments and trade, and in terms of investment flows, global markets were still very much dominated by savings from Western countries.

Over time, BRICS, with the right planning and policies, would attract a greater share of global investments, he said.

He said the enlarged BRICS bloc might also benefit from greater direct investments between themselves, such as in manufacturing, but here again, he cautioned that many manufacturers – for example the car manufacturers in India and South Africa – were in direct competition with each other, so trade relationships between BRICS countries would need to change.

Flagship Asset Management portfolio manager Kyle Wales said in terms of GDP, China was far bigger than all other BRICS members combined, with India providing the opportunity for rapid economic growth. However, although India had the second biggest GDP of the BRICS, it was still well below the GDP of China.

Wales said in global terms, the addition of the six new members to BRICS was unlikely to “move the needle” in terms of investment flows in the short term.

He said the talk of a BRICS currency was essentially talk of the Chinese Yuan, because of the relative size of the country’s economy compared with other BRICS members.